Under a proposed agreement filed Monday, the Justice Department will require voting machine manufacturer Election Systems & Software Inc. to sell off much of the intellectual property, software, and equipment it acquired from Diebold Inc. last year when it purchased rival Premier Election Solutions Inc.
The controversial $5 million deal, which closed in September, combined the two largest providers of voting machine equipment and gave ES&S control over more than 70 percent of the market.
The deal was not subject to a mandatory federal antitrust review because it was too small, but the DOJ started reviewing the deal after it was public.
The Justice Department along with nine states filed a complaint along with the proposed settlement in federal court in Washington, D.C. on Monday afternoon.
According to the proposed final judgment, ES&S will sell many of the assets it acquired from Diebold, including Premier’s design plans, software and hardware, to a still to-be-determined buyer. Competitor Hart InterCivic Inc. is a likely possibility.
The settlement will require the company to license to the buyer a technology called AutoMARK that helps disabled voters mark a ballot.
The acquiring firm will be permitted to recruit Premier’s employees, and ES&S will waive all non-disclosure or non-compete agreements for six months.
The settlement also allows Premier’s current customers to switch their service contracts to the acquiring firm if they choose, essentially forcing ES&S to re-bid the existing service contracts it acquired in September.
ES&S will no longer be able to submit bids on new voting equipment system contracts with Premier’s equipment.
“The proposed settlement will restore competition, provide a greater range of choices and create incentives to provide secure, accurate and reliable voting equipment systems now and in the future,” said Molly Boast, a deputy in the Antitrust Division, in a statement.
Christine Varney, who heads the Division, recused herself from the review because her former law firm, Hogan & Hartson, represented ES&S before the DOJ.
Many customers considered ES&S and the Diebold unit to be the closest competitors, according to the complaint. In three recent bids worth between $1 million and $6 million, for example, the two were the closest bidders.
After ES&S bought Premier, it got rid of the firm’s sales, product design and certification teams and used ES&S resources to service Premier’s customers. The move made it difficult for regulators to take the deal apart, according to government’s filing.
“It looks like they got as much as they could have considering that the parties immediately after the transaction was consummated started frantically scrambling the eggs,” Robert Lande, a professor at the University of Baltimore School of Law, said in an interview.
Sen. Chuck Schumer (D-N.Y.), who oversaw a congressional review of the deal as chairman of the Senate Rules Committee and urged the Justice Department to investigate, praised the DOJ’s settlement with ES&S. “This decision will restore competition to an industry that is critical to our democracy,” Schumer said in a statement. “If left unchallenged, this merger would have created a virtual monopoly that could have done serious harm to the idea of free and fair elections.”
